May 19, 2020
SBA Issues Paycheck Protection Program Loan Forgiveness Application

On Friday, May 15, 2020, the SBA and the US Treasury Department released the long-awaited Paycheck Protection Program (PPP) Loan Forgiveness Application (Forgiveness Application) which includes detailed instructions.  They also announced that additional guidance would be issued soon to further assist borrowers as they complete their applications.  Publishing the Forgiveness Application was a good first step.  The application and instructions are very detailed and do address some of the questions borrowers likely have.  However, after reading the application and instructions myself; many questions remain unanswered.  While the AICPA has recommended that the 8-week covered period (for purposes of loan forgiveness) begins when operating restrictions are lifted, rather than the date the loan proceeds are received, such a change has NOT been incorporated in the Forgiveness Application.

You can access the PPP Loan Forgiveness Application using this link.  We suggest that you print this 11 page document and review in detail.  The application has 4 parts:
  1. PPP Loan Forgiveness Calculation Form
  2. PPP Schedule A
  3. PPP Schedule A Worksheet
  4. PPP Borrower Demographic Information Form (optional)
The Forgiveness Application also includes borrower certifications that should be carefully reviewed.  Ignoring the demographic information, the Forgiveness Application should be prepared in reverse order.  Namely, the Schedule A Worksheet is used to collect the detailed information that is used to perform the computations in Schedule A.  Information from Schedule A, in turn, is used to compete the Forgiveness Calculation Form.  Thus, I found it more helpful to read the instructions in reverse order as well.

Below I've tried to highlight what is new or has been clarified in the Forgiveness Application:

  • Definition of 'Covered Period' Modified - The Covered Period represents the 8-week time period for expenses to qualify for forgiveness.  The original regulations provided for a single Covered Period that began on the PPP loan disbursement date.  The Forgiveness Application provides for an 'Alternative Payroll Covered Period'. Borrowers with a bi-weekly or weekly payroll schedule can elect to calculate eligible payroll costs using the 8-week period that begins on the first day of their first pay period following their PPP loan disbursement date. This option is provided for administrative convenience only and does not impact overall loan forgiveness.
  • Non-Cash Compensation to Owners Excluded - Throughout the Forgiveness Application, there is a clear distinction made between employees and owners.  Non-cash compensation (meaning other than W-2 wages) eligible to be included in Payroll Costs consists of the following: employer paid health insurance, retirement benefits and state unemployment taxes.  The Forgiveness Application indicates only employee related non-cash compensation paid by the employer is eligible for forgiveness.  While this treatment is inconsistent with prior interpretations, it does provide consistency amongst the different business types (S-corporation, partnership and self-employed individuals) applying for forgiveness.  This change effectively removes owner related health insurance, retirement benefits and state unemployment taxes from the definition of Payroll Costs.
  • Owner's Compensation Limited - All eligible wages or self-employment income are limited to an annual amount of $100,000.  The Forgiveness Application adds another limitation in that owner's compensation includable in forgivable Payroll Costs is the lesser of $15,385 or the 8-week equivalent of their 2019 compensation.
  •  Full-Time Equivalents (FTEs) Defined - The Forgiveness Application clarifies that a 40-hour work week should be used for purposes of calculating a FTE.  The average FTE during the Covered Period or Alternative Payroll Covered Period must be calculated for each individual employee The maximum FTE for each employee is capped at 1.0.  Alternatively, a borrower can elect to use a simplified method that assigns a 1.0 FTE for employees that work 40 or more hours per week and 0.5 FTE for employees who work less than 40 hours per week.
  • Costs Incurred OR Payments Made - The Forgiveness Application clarified that both payments made during the Covered Period AND costs incurred, but not paid until after the Covered Period, will qualify for forgiveness.
Another useful resource is the Paycheck Protection Program Loans Frequently Asked Questions (FAQs) which can be accessed using this link.  This document is updated periodically by the US Treasury.  The FAQs were last updated on May 19, 2020 and includes 48 questions and answers.

We will continue to provide updates as additional guidance is issued by the SBA and/or the US Treasury Department. The data collection and documentation requirements for the Forgiveness Application are significant.  We recommend contacting your payroll service provider to determine what reports might be available to simplify the process.  We are available to assist in navigating the PPP Loan Forgiveness Application process.  However, keep in mind that we may not have answers to all of your questions until additional guidance is issued.

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